Improving quality of care for the over 40 million Americans over the age of 65 is a major national priority, particularly as the population ages. While numerous policies have been adopted to improve quality of care for older adults over the past several decades-with varying degrees of success-health care payment has been a largely untapped but potentially powerful policy tool to improve quality of care. Recently, however, payers have invested significant resources in the development and implementation of pay-for-performance programs for hospitals, physicians, nursing homes, and home health providers. Despite the enthusiasm for and widespread adoption of pay for performance, the empirical evidence linking such programs to quality improvement is surprisingly thin. Current evidence leaves many unanswered questions concerning not only the effectiveness of pay-for-performance, but how the design and implementation of these programs affect quality improvement. As the country focuses on improving quality of care, modifying the current payment system to reward high-quality care will be one of the most important policy tools. To improve the development and success of these policies, it is crucial to gain a better understanding of the effectiveness of pay-for- performance and the elements of pay-for-performance programs that most influence provision of high-quality care. The overall objective of this study is to assess the relationship between pay-for-performance and the delivery of high-quality care in the setting of nursing homes. Nursing homes have been plagued for decades by low quality of care and failed attempts to substantially improve quality. The proposed study seeks to take advantage of one of the largest national experiments in pay-for-performance to date: the recent adoption of nursing home pay-for-performance by a number of state Medicaid agencies. Because Medicaid's nursing home pay-for-performance programs are implemented at a state level, they vary in program design and timing of implementation. This provides a unique and timely opportunity to evaluate pay-for-performance and its design. Using national data on all US nursing homes from the Minimum Data Set, Medicare claims, and the Online Survey, Certification, and Reporting (OSCAR) database from 1999 to 2009, this study examines changes in the quality of nursing home care when some states implemented pay for performance, controlling for secular trends in states without pay for performance. Specifically, this project examines: 1) whether pay- for-performance improves quality of care through changes in clinical quality measures, avoidable hospitalization rates, staffing levels, and number of deficiencies; 2) how the design of pay-for-performance affects improvement in quality of care, examining differences in the size of financial incentives and types of measures used in each program; and 3) the effect of pay-for-performance on disparities in care between facilities. The results from this study will contribute significantly to existing literature on pay-for-performance and provide vital information to policy makers and insurers regarding the design and implementation of pay-for- performance. PUBLIC HEALTH RELEVANCE: Nursing homes have been plagued for decades by low quality of care and failed attempts to substantially improve quality. Improving quality of care in nursing homes is a national priority. This project tests the effect of pay-for-performance on quality of care in nursing homes and will directly inform future efforts to improve quality of care for nursing home residents and design more effective pay-for-performance programs.